When the Orinda Theater opened on Dec. 27, 1941, with a double feature of "The Maltese Falcon" and "Tarzan's Secret Treasure," no one in a town of farms and rural retreats could have predicted the high drama that would occur off the big screen.

No one could have guessed they were in one of the last popcorn palaces to be built during a golden age, before the dawn of strip-mall cinemas and multiplexes.

Or that a 9-year-old boy named Clark sitting near the back would, having grown up to be the area's biggest developer, lose millions and nearly ruin his career trying to get rid of the theater.

Or that the fight to save it would reach the state Supreme Court, propel the current mayor into public life and inspire residents to seize local control.

Just about everybody in the East Bay has seen the theater - its dorsal-fin sign and marquee a familiar sight for Highway 24 commuters and a neon beacon for homeward-bound Orindans. How many know the peculiar journey it took to the heart of a community?

This story begins with two men of action from Piedmont who looked to Lamorinda (Lafayette, Orinda and Moraga) and saw gold in a growing suburbia. One dreamed about movie palaces; the other would end up having nightmares about them.

The first was Donald Rheem, whose father, William, was once president of Standard Oil, and who made his money in galvanizing plants. Rheem and his wife, Alice, moved from Piedmont to a 16-acre Moraga ranch in 1934. Within a few years, Rheem turned the Spanish-style home into a Xanadulike estate where he entertained the famous.

Rheem would acquire land throughout Lamorinda - more than 1,500 acres at one point. While he made his biggest moves in Moraga, he forever changed Orinda in 1937 by purchasing land at what was known, even then, as the Orinda Crossroads.

Anthony Heinsbergen, who decked the walls of more than 750 theaters, including Oakland's Paramount, and was once the subject of a touring Smithsonian Institution exhibition, created opulent murals with bare-breasted maidens, some inspired by his wife.

But by the 1970s, the theater was neglected and its style was unappreciated: Art Deco reminded some of the Depression; its big screen showed second-run flicks that few attended. That's where the second action man, Clark Wallace, stepped in and made the biggest mistake of his life.

A MAN WITH A PLAN

Wallace, a trim, 69-year-old fly fisherman whose Orinda home has the city's best view - Lafayette Reservoir below, Mount Diablo above - has enjoyed a long, prodigious career in land development, and once was California's real estate commissioner. He also served two terms on the local school board and was president of the Chamber of Commerce.

He is well-liked around Orinda, according to people who have worked with him, due to his integrity and - because everyone feels for the fall guy - due to his big loss in the theater fight.

Wallace's father, Ed, and grandfather, Will, opened a real estate office in 1928 and moved it to Orinda a decade later. "Dad figured this was going to be more than a country-home retreat," said Wallace. He agreed, joined the brokerage in 1958 and, on a fishing trip nine years later, convinced dad he was ready to take over.

"I was Orinda Citizen of the Year in '69," said Wallace, "and Godzilla by '72 because of all the development I was involved in."

When Wallace first considered razing the theater in the late 1970s, he believed that he could satisfy both merchants and residents with a modern office and shopping complex. "People were complaining they had to go to Walnut Creek to shop," he said. "I thought, I can be a hero.' "

He planned a 116,000-square-foot complex that "didn't make economic sense unless I tore down the theater." He bought the 4-acre block in 1982, wary of opposition but confident: He had just completed Pine Grove, an office complex just across Highway 24, despite heavy opposition and a lawsuit. Most important, he figured he knew better than his foes.

He figured wrong. "I think I went to 73 public hearings in the next four years," he said.

THE FRIENDS

Orinda Mayor Laura Abrams, a 54-year-old real estate agent and 30-year resident, is easygoing but plucky. She has a master's degree in business and comes from "a family of fairly aggressive types," she said.

Abrams, who now works across the street from the theater, remembers her first trip inside. It was late 1981 or early 1982, she said, and she went to see David Lynch's "The Elephant Man," and was fascinated by Heinsbergen's murals.

Just weeks later, Abrams picked up a copy of the Orinda Sun and read about Wallace's plans. She envisioned her adopted town losing one of its biggest assets. "It was an obscenity to consider," she said.

So she attended a meeting of the new Friends of Orinda Theater in the town's community center. When she left, she was publicity director and had accepted what would become a full-time job.

They were resourceful, tough and persistent, willing to sit for hours in a public meeting for five minutes of speaking time, to hold bake sales and beg for donations in a town still split on the issue.

Abrams remembers approaching Wallace at an early community meeting. "You're going to lose on this," she warned. "The community is not going to let this happen."

But Wallace was serene - and somewhat brash publicly. Although the theater was nominated by the state for the National Register of Historic Places in August 1982, Wallace's permission was needed. "It's a monolithic mausoleum," he said of the theater during a January 1983 meeting with the chambers of commerce of Orinda, Moraga and Lafayette. "It's ugly and has no aesthetic value whatsoever."

TAKING IT TO COURT

In August 1984, Contra Costa County supervisors approved Wallace's project, now five stories and 108,000 square feet, plus three interior mini-theaters to replace the palace.

The race was on: Wallace removed tenants and, in October, closed the theater with "The Big Chill" and "Moscow on the Hudson." His opponents sued. The Friends argued that Wallace hadn't sought alternatives to a plan that would damage the community.

Also suing was the Orinda Association, a quasi-governmental body that sat under county supervisors, arguing not that the theater was priceless but that the development's height and density violated town ordinances. "If the theater was saved, all the better," said Jim Roethe, a lawyer who was president of the association and lead counsel.

County Superior Court Judge Max Wilcox Jr., a former Orinda resident, ruled in favor of Wallace in February 1985. The two community groups appealed, but Wallace - losing money by the day - wanted to demolish the building before a ruling by the Court of Appeals.

On March 28, the appeals court said it would drop a stay of demolition in 24 hours, as the case to keep the theater was likely to be lost. The only option was an emergency request to the California Supreme Court. It was filed at 9 a.m. the next day.

Horn, an artist and art agent, remembers standing on a pedestrian bridge taking memorial pictures of the theater that day. Abrams, in bed resting after having her second child, kept her doors open to listen for bulldozers. "I told them to let us know if they start moving," said Gail Hillenbrand, an attorney then with McCutchen, Doyle, Brown & Enersen, which had taken the Friends' case pro bono.

Late in the afternoon, Rose Bird's court weighed in. Five of seven justices said to hold the wrecking ball.

More than a year later, after several failed settlement talks in and out of court, the appeals court told Wallace to go "back to the drawing board." While the Supreme Court decision had rested on the Friends, the appeals court validated the Orinda Association.

After all the fighting and the legal ups and downs, and for all the opinions of Art Deco experts, art preservationists and theater historians, the proposed building was just too tall.

CITY OF CELLULOID

Wallace knew he was in big trouble. Everything had changed in Orinda.

The theater fight had strengthened activism in the town and fomented distrust in county leadership. While residents rejected incorporation by a 2-1 margin in 1967 - a 1974 bid didn't even get to the ballot - they seized local control in March 1985.

"The community was changing and recognizing the value of its resources," Abrams said. "Now we don't let people build on the ridges or close to the creeks. It's an extension of that same attitude."

"I was toast," Wallace said. "Now I had to go back not to the friendly confines of the Board of Supervisors, but to a new City Council, of which four members were openly opposed to tearing down the theater."

Looking back, Wallace said he should have abandoned his project earlier, but, "There's an axiom in this business: You get in so deep the only way you can get out is to build your way out."

The result was a 90,000-square-foot compromise - 35,000 square feet of retail space suitable for small specialty stores and cafes (all but a few of the current shops are now locally owned), 40,000 square feet of office space and an underground parking garage. It was also a disaster for Wallace in almost every way.

Keeping the theater doubled his construction costs while the retail market had gone south during the fight. The theater kept the prime spot on the square, but any operator would not be able to afford competitive rent.

The final blow: Wallace had to pay $1.3 million to restore the time-ravaged theater - mushrooms grew on the floor, mold on the murals - and make it earthquake-safe before a grand reopening. "Casablanca" marked the start of a new era on June 29, 1989.

About a year later, McMorgan & Co., an investment firm, foreclosed on Wallace, who - having bought out his partners earlier - shouldered "a few million dollars" in lost capital and seized assets. It was part of a string of bad luck that Wallace estimates cost him $12 million in three or four years. He lost everything but his house and family.

After years of success, "Here I was 60 years old and scraping bottom," Wallace said. His wife, Gerry, now 68, went back to work as a ceramicist, and Wallace in 1994 stepped down as Gov. Pete Wilson's real estate commissioner in order to fix his affairs - and avoid embarrassing the governor.

"These aren't happy times, but it is what it is," he said recently. "It's the nature of the business. It's high risk and high reward and high loss sometimes. This happened to be the biggest personal loss."

NO HARD FEELINGS

Wallace recovered, thanks in part to the Otis Spunkmeyer cookie company, which hired him to launch a real estate asset division, and he is involved in developing several projects in Northern California. He said he has no hard feelings for the preservationists he once dubbed "Laura and the Lynchers."

"They did what they believed in," Wallace said. "I just didn't agree with them."

Abrams was elected to the City Council in 1994. "Would I have run for public office if I hadn't done the theater fight? Definitely not," she said. "Would I have been elected? Definitely not. People knew me, and people in Orinda have a long memory."

Orinda Theater Square, meanwhile, is beloved but remains, in some ways, the economic trouble spot that Wallace predicted it would be. Merchants - and property managers - have come and gone, and a recent stroll through the center found seven empty storefronts.

Current tenants include the recently installed Starbucks and a High Tech Burrito, a salon, a flower shop and a couple of small restaurants, and places to buy chichi pet gifts, custom kitchens, toys, leather bags and jewelry.

ScanlanKemperBard, a real estate merchant banking firm out of Portland, Ore., bought the block in September 2000. Chief Operating Officer James Kessler said, "I think it's finally at a point where it can be successful . . . We don't lose money on it."

Kessler said that 11 percent of the retail space is vacant, but new tenants are coming, including a spa offering massages, facials and Chardonnay.

The theater, operated by Renaissance Rialto of Oakland - which also runs the Park in Lafayette, the Oaks in Berkeley and the Grand Lake in Oakland - has only sold out its 750-seat big screen once, while showing the latest Harry Potter movie. But the palace - which a few years ago added two smaller screens - makes a small profit, said Renaissance Rialto owner Alan Michaan.

Most importantly, it's no multiplex. The popcorn and pop is cheaper, and the staff is in love with movies.

"It's nice to work at a place you're proud of," said projectionist Chris Rasmussen, 41. "This is real."

In a final twist, Michaan had ended up being hired by Wallace to run the theater even though he had called Wallace a "cultural vandal" at a public meeting in the early '80s. "It was a marriage born out of necessity," Michaan said.